OPEC Expects Decline In Global Oil Supplies

Jim Brown
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That is a headline you don't hear everyday. It is not often, actually almost never that you hear a prediction from OPEC about declines in anything. Did a sudden attack of conscience afflict OPEC ministers?

Actually it was a dose of reality that caused the prediction. The monthly OPEC report said "The market could see a contra-seasonal draw in the second quarter of 2011, if the recent supply disruption were not offset by production increases. This draw could be easily accommodated by reportedly high commercial oil inventories across the globe, particularly in the Organization for Economic Cooperation and Development countries."

OPEC believes Libyan exports are "well below" 500,000 bpd and down significantly from the 1.6 mbpd output in January. Readers of this newsletter already know Saudi's offer to replace in "quality and quantity" was an empty promise and European refineries turned down the oil offered by Saudi Arabia.

Kuwait was initially going to increase production by 300,000 bpd within a month but then backed off that claim saying they were going to keep output steady. Nigeria is going to try and increase output of light crude but that only counts if they can keep their pipelines intact ahead of their presidential elections in April. This is the period when the MEND rebels can be counted on to blowup key pipelines.

You no longer need to read between the lines of the OPEC reports to understand the real problem. OPEC has admitted that the supply shortage will have to be met by inventory drawdowns in the OECD countries. They did not say "strategic petroleum reserves" but everybody knows what they meant. The only supplies outside the SPR are those held by refiners and pipeline companies and used in a normal rotation during normal production cycles. Those supplies of light sweet crude will dwindle quickly and OPEC is expecting the IEA to open strategic reserves to handle the shortage.

For me this is evidence we are already at the "Light Sweet Peak" or Peak Sweet™ as I am calling it. OPEC can't produce more sweet because they don't have any excess capacity in light crude. The truth is there for anyone who can read.

OPEC claims current demand for OPEC crude is 29.8 mbpd and 500,000 bpd over 2010 but production estimates put March production at 30.5 mbpd. OPEC expects crude demand to grow by +1.4 mbpd in 2011 to 87.8 mbpd. The IEA is expecting 90 mbpd in 2012.

The U.S. Energy Department projected last week the average American household will spend $700 more for gasoline in 2011 then it spent in 2010. President Obama said a halt to his drilling moratorium was not the answer. "Americans have to conserve more and reduce their demand for oil going forward." Translated that means drive less and do it in a pipsqueak car. He said he would do everything possible to prevent "price gouging" by the oil companies. He obviously has the party line memorized and the attack on oil companies plays into the consumer frustration over higher prices. I think a lot of voters will be hoping for a change in 2012.

Jim Brown

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The OilSlick Newsletter is based on the expectations for global oil production of light sweet crude to peak and begin to decline in the 2012-2014 timeframe. I am calling this "Peak Sweet™" instead of Peak Oil. This is the point where global production of conventional light sweet crude supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Sweet™ countdown clock is ticking and time is growing short. Peak Oil will arrive shortly thereafter. Are you prepared?